MANILA (2nd UPDATE) - The Bangko Sentral ng Pilipinas as well as the state-run Landbank of the Philippines, and Development Bank of the Philippines should be removed as funding sources for the Maharlika Investments Fund, an advocacy group said on Wednesday.
During the Senate deliberation on the MIF, Foundation for Economic Freedom President Calixto Chikiamco said funding the sovereign fund undermines and weakens the BSP.
In the version of the Maharlika bill filed in the Senate, the MIF will be funded through a P50 billion contribution from the Land Bank of the Philippines, P25 billion from the Development Bank of the Philippines, while the Bangko Sentral ng Pilipinas will remit 100 percent of its dividends for 2 years to the Fund.
Chikiamco said the BSP has a P145 billion capitalization in December 2019 and is "deteriorating."
"We need a strong BSP in an era of economic and geopolitical uncertainty. Hindi po natin alam maaring magkaroon na naman ng giyera between NATO and Russia, magka invasion of Taiwain," Chikiamco said.
The BSP's mandate includes price stability and keeping a strong financial system and stable peso, but funding the MIF could "undermine" it as an institution as it would be forced to focus on income generation.
"They will be under pressure to make income, make a net income that will be declared as dividends to the MIF perpetually... It may desist from these operations as it pursues higher net incomes to be declared as dividends," he said.
The BSP also sometimes loses money from trading operations, he said.
A 2018 law also mandates the BSP to raise its capitalization to P200 billion. Chikiamco said this could be delayed if parts of the dividends would be used to fund the MIF.
UP Los Banos economist Enrico Villanueva earlier urged lawmakers to allow the central bank to reach the P200 billion before allowing it to fund the MIF.
In the same briefing, BSP Deputy Governor Francisco Dakila said the central bank's dividends "essentially belong to the national government."
"The fact that the dividends belong to the government, it should not affect the BSP's independence and its capacity to deliver on its mandate in promoting price stability, a strong financial system and the safe and efficient payment system," he said.
Dakila added that the BSP does not see the bill "as infringing" on its ability to achieve its mandate.
But he admitted that funding the MIF could delay the BSP's capitalization. He added that the BSP's balance sheet has improved and is still strong.
PROBLEMATIC GOVERNMENT BANK SOURCES
The FEF also pointed out that the P50 billion seed funding from the Landbank and P25 billion from the DBP already represent 25 percent and 33 percent capital of the Landbank and the DBP, respectively.
The group said this "might be breaching the prudential regulations on a single investment."
The law is also unclear whether these funds were guaranteed by the national government. If ever these funds were guaranteed, it might also lead to risks, the group said.
"When parties are protected from the consequences of their decisions, there is an incentive for the parties to be reckless. Landbank, DBP will not do any due diligence kasi guaranteed ito ng national government," Chikiamco said.
When the MIF value decreases, it would also have an impact on the capital of Landbank and the DBP which might even spread to the rest of the banking system, he said.
Landbank president and CEO Cecilia Borromeo meantime doused off Chikiamco’s apprehensions, saying that their financial standing is stable. The P50 billion to be given to the MIF will just be part of their P1.3 trillion investible funds, she added.
This prompted Sen. Sherwin Gatchalian to question the amount.
"Ba’t ang laki ho? I’m not happy to hear that there’s much funds in the bank. Considering that the GFIs are geared toward a specific mandate. Landbank for agriculture, DBP for developmental projects… how come there’s P1.3 trillion that is not being plowed at the agriculture sector?” Gatchalian asked.
The money invested could have also gone to farmer loans, he said.
As for assistance to farmers, Borromeo said Landbank has already released around P216 billion worth of loans to the agricultural sector.
Senator Chiz Escudero earlier said that Congress has been trying to amend the charter of the 2 banks in order to allow them more to lend to the agriculture sector.
Chikiamco also cited confusion about objectives.
He said it is still unclear if the MIF seeks to be developmental or to optimize returns. The MIF's tax-free privileges can also result in an uneven playing field and deter investors.
The measure originally included state-run pension funds as capital sources, but this was scrapped amid strong opposition from various sectors.
Former BSP Deputy Governor Diwa Guinigundo also said the timing is not right for the creation of the MIF, and agreed that sourcing funds from public finance could raise national debts.
He noted that sovereign wealth funds are from surpluses, which the country does not have.
"The Philippines is no recipient of any of these surpluses. Instead, what we have are a serious balance of payments deficit, a large fiscal deficit reaching historical highs in excess of 6.0 percent of GDP—and as a result of huge borrowing due partly to the pandemic —a debt to GDP ratio exceeding 60 percent. We have nothing to invest at this point," Guinigundo said in a statement.
As of the end of 2022, the country's debt-to-GDP ratio improved to 60.9 percent from a high of 63.5 percent during the peak of the pandemic. By global standards, a 60 percent debt-to-GDP ratio is considered high.
Getting funds from Landbank and DBP could also force the government to borrow funds to compensate for the loss of capital which are already earmarked to sustain government operations, Guinigundo said.
Using the investible funds of these state-run banks could also put them at risk.
"These GFIs could be constrained from both lending to key areas of economy and investing in other infrastructure and social development projects," he said.
"These could lead to contagion and trigger a series of bank runs, especially now that the banking system's balance sheets have arguably weakened due to the pandemic," he added.
Mandating state-run banks to contribute to MIF might need easing of safeguards to deposits, Guinigundo said. This could lead to unfair competition and may result in financial instability, he said.
He also argued that mandating the BSP to contribute to the MIF could impact its ability to perform its mandate.
"With lower capitalization, the BSP's conduct of monetary policy could be seriously impaired," he said.
Meanwhile, Sen. Raffy Tulfo admitted he is still analyzing the situation if the country really needs the MIF.
“Pinag-aaralan ko pa rin kung ano ba talaga ang magiging stand ko sa Maharlika fund. Kung ito ba ay makakabuti sa taumbayan. At kapag nakita ko na hindi, then, I will not vote for it,” Tulfo told the panel.
Economists also earlier pointed out that the success of a sovereign wealth fund largely depends on its managers, the funding sources that usually come from surpluses, and a corruption-free government.
- with a report from Jessica Fenol, ABS-CBN News